Critical audit another hit to $16 billion California tunnels

SACRAMENTO, Calif. (AP) — California's water managers appear to have violated state law by hiring an unqualified consultant to help plan Gov. Jerry Brown's $16 billion project to build two massive water tunnels, state auditors said Thursday. The audit also faults the state Department of Water Resources for not finishing a cost-benefit analysis as the price climbs.

The audit is the latest blow to Brown's plan to build twin tunnels east of San Francisco to deliver water from the Sacramento River mostly to farms and cities hundreds of miles away in central and Southern California. Last month, the nation's largest supplier of irrigation water to farms voted not to help fund the project.

The "unexpected complexity" of the project has resulted in significant delays and cost increases, auditors said. As of June, the planning costs alone had reached $280 million, double the department's original 2009 cost estimate.

They included nearly $14 million to Hallmark Group, a Sacramento-based company that the audit says "does not appear to possess the technical credentials or experience on relevant projects."

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The department could not show that it ever evaluated Hallmark's qualifications for the job, auditors wrote. They said the department needed to seek competitive bids or at least demonstrate that Hallmark was qualified.

Brown's office referred a request for comment to the Department of Water Resources.

"We must respectfully disagree" that state law wasn't followed, the department said in its response. It says the state has received "excellent value and quality" since the Hallmark Group was hired in 2008. Hallmark's primary goal was cost-control, where it has "done an outstanding job," officials wrote.

The department and the Hallmark Group both said auditors misunderstood the firm's role in the project by assuming Hallmark was primarily doing construction project management that requires a licensed engineer or general contractor.

Hallmark, in a statement, faulted auditors for "failing to accurately characterize the purpose for which Hallmark was employed on the project."

The department released a draft economic analysis of the massive project last year. Auditors said, however, that a final economic and financial analysis "is critical in determining whether water contractors are willing and able to pay for the construction."

Department officials said a final analysis is premature until it is known which water agencies will help pay for the project.

Last month, the board of the Westlands Water District voted to withdraw its participation from the project. Project backers noted that other water districts have since voted to back the project. The tunnels are vital to skirt the vulnerable Sacramento-San Joaquin River Delta and protect imperiled fish and water deliveries to agencies south of the delta, proponents said.